How to Interpret Q1 Greentech VC Numbers

Rob Day: April 20, 2012, 1:42 PM

Over the past couple of weeks, various deal-trackers have come out with their Q1 tallies for cleantech venture capital dealflow, and it's a bit confusing this time around.

The Cleantech Group came out with its totals (see the great slide deck here), showing that Q1 saw an increase in the number of cleantech deals (from 176 in Q4 to 185), even as dollar amounts went down. Interestingly, they talk up a rebound in early stage (Seed + A) investing, as well.

DowJones Venture Source has a pretty different number reported in the overall tally reported today, showing energy deal counts drop from 30 in 1Q11 to 29 in 1Q12, of which 23 were in renewables. This isn't from the helpful special cleantech tally it always does, but that hasn't been seen yet, so it's just an incomplete data point to include for context.

CB Insights also released its tally of deals, and it showed a different picture -- not only did dollars fall, as shown as well by the Cleantech Group, but further, deal counts fell from 69 in Q4 down to 56 in Q1. CB Insights also shows a significant decline in the number of early-stage deals in the sector, with Seed and Series A deals together falling from 40% of the overall count in Q4, to 17% of the overall deal count in Q1.

What's going on?

I always like to think about this kind of disparity in terms of three factors: geographic differences, definitional differences (i.e., inclusiveness), and thoroughness.

Geographically speaking, a closer look at the Cleantech Group numbers is a bit revealing, in that the topline numbers above were global. In its North American tally the deal count actually went slightly down -- 118 to 116 -- from Q4. Cleantech Group doesn't break down that region from an early stage vs. late stage perspective in this deck, unfortunately. But we can at least start to rationalize between the Cleantech Group perspective and the CB Insights perspective, in that part of the upward trend that the Cleantech Group saw was actually in other regions, like Europe and Israel.

There's still a big difference between the Cleantech Group's 116 total counted deals in North America, and CB Insights' 56 total counted deals in the U.S. And I strongly doubt that's because of Canadian deals. Also, there's still the matter of the CB Insights tally showing a significant decline, while the region-specific Cleantech Group tally was pretty flat.

Definitional differences could play a very large role here. Looking into the sectoral breakdowns within the Cleantech Group numbers, one trend they describe is the increased activity in non-energy subsectors. The company saw a nice uptick in water sector deals, for example. Meanwhile, the CB Insights presentation suggests the company perhaps has a narrower definition of "greentech," not calling out water for example, albeit with a big catch-all "other" category. And as well, remember that being named the Cleantech Group means that organization has an incentive to cast a wide net and include a lot of venture-backed companies that, within a broader survey covering multiple sectors, might reasonably be put into other tech categories instead. The Cleantech Group might also have definitional differences around a "venture capital" round, as well. It wouldn't be surprising to see the Cleantech Group have a looser definition of what types of financings to include, again, because it's the company's mission to be inclusive.

In terms of thoroughness, it's always impossible without going deal by deal to truly figure out if one of these professional organizations is just flat-out missing deals. But if CB Insights (the lower of the two totals) was really missing a lot of deals that the Cleantech Group was catching, you would expect CB Insights to miss more of the smaller (and thus less-reported) variety. Instead, looking at its tally of dollars ($763M) in greentech venture deals in the quarter, versus the Cleantech Group's $1.3B total for North America, it would have really needed to have completely whiffed on some really big deals if lack of thoroughness was the reason for the deal count difference. Most likely, the differences are due to the methodological differences described above. As for me, I think highly of both groups' efforts, having tracked their processes over the past couple of years.

So: what do we conclude, meshing these perspectives? It looks like the first quarters saw venture capitalists shifting their focus a bit outside of the popular subsectors of cleantech (solar, energy efficiency, energy storage), and into subsectors that haven't gotten as much attention -- and that sometimes aren't even considered "cleantech" by some definitions. And maybe, an expansion of "non-VC" financings, counted by one group but not the other.

If so, those are really healthy shifts, in my opinion.

Unfortunately, we have less clarity around the idea of early stage investments making a rebound. While perhaps the same definitional differences are at work here, it's just too tough to parse that out. And if CB Insights is right and early-stage greentech took another step back, that's not good. Early stage is the lifeblood of the industry, because they are tomorrow's follow-ons, and also it's an indication of investors putting new money into the sector instead of just defending earlier bets.

Here's hoping the Cleantech Group's perspective on this question -- that early stage is rebounding -- is the more representative one.

Latest Update: Today 4:19 PM

About Cleantech Investing:

Rob Day is a Partner with Black Coral Capital, based in Boston. He has been a cleantech private equity investor since 2004, and acts or has served as a Director, Observer and advisory board member to multiple companies in the energy tech and related sectors. The views expressed on this blog are those of Rob, not necessarily the views of any of his colleagues and affiliated organizations. Contact Rob at .(JavaScript must be enabled to view this email address).

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